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Central Banks Fight Back Against Bond Rout, Calming Investors

Added 02-26-21 04:04:03am EST - “(Bloomberg) -- Central banks from Asia to Europe escalated their fight to calm panicking markets after U.S. Treasury yields surged to the highest level in a year, prompting policy makers to respond with a mix of debt purchases and…” - News.yahoo.com

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Posted By TheNewsCommenter: From News.yahoo.com: “Central Banks Fight Back Against Bond Rout, Calming Investors”. Below is an excerpt from the article.

(Bloomberg) -- Central banks from Asia to Europe escalated their fight to calm panicking markets after U.S. Treasury yields surged to the highest level in a year, prompting policy makers to respond with a mix of debt purchases and intervention threats.

The Reserve Bank of Australia waded in with more than $2 billion of unscheduled purchases, while Korea announced buying plans for the next few months. European Central Bank Executive Board member Isabel Schnabel said her institution may need to add more stimulus if the surge in yields hurts growth.

While the response appeared to calm bond investors, it’s unlikely to bridge a deepening divide between traders and central banks over the pace of the economic recovery. Policy makers fear the so-called reflation trade, already rippling through all markets, could seep into economies that have yet to rebound from the coronavirus shock.

“Reflation now needs a rein, and central banks are fighting the sharp rise in yields,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “Their credibility is at stake here too -- if they want to maintain accommodative policy they have to act if markets look like they’re running away.”

In the Asia-Pacific region, the RBA is taking the lead in acting as a breakwater for rising yields, a role typically played by the Bank of Japan. Its offer to buy A$3 billion ($2.4 billion) of debt acted to brake the selloff, with Australia’s three-year bond yield erasing gains. Treasury yields also came down from the 1.61% highs reached Thursday night as Asian investors piled in.

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